3.1 Flashcards
What are private sector organisations?
Includes all businesses set up by individuals or groups, can be incorporated or unincorporated
What is incorporation?
The legal process where a business and its owners become a separate legal identity, when a company is created
What are unincorporated businesses?
Businesses where there are no legal separations between the owners and the business, owners have unlimited liability
What is an incorporated business?
Businesses with a separate legal identity from the owners, owners have limited liability
What is limited liability?
Owners can only lose what they invest in the company, personal assets are not at risk
What is unlimited liability?
Owners are personally responsible for all the businesses actions, can lose personal assets if in debt
What are sole traders?
The simplest form of a private sector business, owned by one person, unlimited liability, owner keeps all profits
What is a partnership?
Business owned by one or more person, partners share responsibility and profits, unlimited liability
What are limited companies?
Businesses that have gone through incorporation, have a separate legal identity to their owners, owners liability is limited to their investment
What is market capitalisation?
Market capitalisation represents the total market value of the issued share capital of a company
What are public limited companies?
PLCs trade their shares on the stock market and can raise large sums of money from the public. They must abide by various company acts
What are private limited companies?
Private limited companies have limited liability, shares can only be transferred privately, and profits have to be shared with shareholders
What are not-for-profit organisations?
Organisations focused on social or ethical objectives rather than profit maximisation, including charities and social enterprises
What are charities?
Established to collect money for specific causes, run according to business principles, and aim to maximise costs while raising for good causes
What is a social enterprise?
Businesses with a social or environmental purpose that can sell products or services, reinvesting profits to make a social impact
What are shareholders?
Invest in companies for potential returns on investment, dividends, capital gains and decision making power in the company
What has influences on share price?
Factors such as type of business, mission, objectives, decisions and performance that affect the value of a company’s shares
What is a sole trader?
A business owned and operated by one individual, centred around personal goals and potentially rapid responsiveness
What are the advantages of a partnership?
Two or more owners,
More capital available,
Relatively easy to start,
Income taxed once as it’s personal income
What are the disadvantages of partnerships?
Unlimited liability,
General partnership,
Limited partnership,
Partnership dissolves when one partner dies or wishes to sell,
Difficult to transfer partnership
What are the advantages of sole traders?
Owner keeps all profits,
Owner can make decisions quickly,
No boss so arguments do not occur
What are the disadvantages of sole traders?
Unlimited liability,
Difficult to take holidays,
High risk so hard to borrow from banks
What are the advantages to LTDs?
Limited liability,
Can maintain control of the firm,
Profit figures can be kept secret
What are disadvantages to LTDs?
Not as much finance can be raised,
It is time consuming and costly to set up,
Legal documents must be prepared
What are advantages to PLCs
Shareholders have limited liability,
Large amounts of capital can be raised as able to sell on stock market,
Can borrow finance more easily as trusted by banks due to size
Due to size can benefit from economies of scale which allows PLCs to dominate a market
What are the disadvantages of PLCs
Control over the business is lost if others buy over 50% of shares
Profit figures must be made public
Must print prospectus for potential shareholders
Must pay stock market for listing and banks to sell shares
What is social enterprise?
A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to its owners
What is the external environment?
Elements outside a businesses control, including PESTEL factors: political, economic, social, technological, environmental and legal
What is PESTEL?
Political, economic, social, technological, environmental and legal
What are political factors?
Government policies, regulations and stability affecting businesses
What are economic factors?
GDP trends, inflation rates, and interest rates shaping customer behaviour
What are technological factors?
Advancements driving innovation and operational efficiencies in industries
What are environmental factors?
Sustainability practices and regulatory requirements impacting operations
What are legal factors?
Laws and regulations governing business operations, employment and consumer protection
What are market conditions?
Attractiveness of the market affecting all businesses in an industry
What is consumer demand?
Customers desire and ability to purchase products or services
What is economic growth?
Measure of the value of output in the economy
What is demand?
Consumer desire and ability to pay for goods or services
What is GDP growth?
Varies based on economic cycle and influence demand
What is a competitive environment?
Factors influencing market completion and profitability
What is price inflation?
Reduces consumer disposable income
What is an impact of wage growth?
Increases consumer spending power
What is an impact of an increased employment level?
Impact disposable income and consumer spending
What does the Bank of England base rate influence?
Overall interest rates in the economy
What are demographic factors?
Population size and composition impacting business demand
What are environmental changes?
Business concerns about resources, energy use, waste and pollution
What is government legislation and environment?
Acts protecting the environment and regulating pollution control
What is fair trade?
Movement ensuring fair prices and conditions for producers in developing countries
What is the external environment of a business?
External factors influencing business operations and decisions
What are interest rates?
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding
What is a business?
An organisation that exists to provide goods and services on a commercial basis to customers
What are goods?
Physical products such as consumer electronics, industrial components and cars
What are services?
Intangible products such as insurance, dental services and cleaning
What is a mission statement?
A statement that determines the companies direction, focuses on the companies future, aligns objectives, makes decision making easier and motivates staff
What is an effective mission statement?
One that differentiates the business, defines markets, involves stakeholders, excites, motivates and guides employees
What are the problems with mission statements?
Criticism includes lack of support by business actions, vagueness, being viewed as a PR exercise and cynicism by employees and senior management
What are objectives?
Set by businesses to ensure everyone works towards the same goal, motivates employees and measures business success
What are SMART objectives?
Specific, measurable, achievable, realistic, time-bound
What is profit?
The surplus of total revenue over total costs for a business over a period of time
What is growth?
Exploiting market position to earn higher profits when a firm grows
What is survival?
Aim for a business to continue trading over time
What is cash flow?
The movement of cash into and out of the business
What is social responsibility?
A businesses duty to make ethical decisions that positively impact society
What is total revenue?
The money received from selling products, calculated as selling price multiplied by quantity sold
What are fixed costs?
Costs that do not vary with output, such as rent, machine hire and marketing
What are variable costs?
Costs that vary directly with output, such as raw materials
What are total fixed costs?
The sum of all fixed costs for a business over a period
What is average cost?
The total cost divided by the quality produced
What is profit calculation?
Profit is calculated as total revenue minus total variable costs and total fixed costs
Why is profit important?
Can motivate people
Good source of finance
Can be used to attract investors
